Given the cannabis movement that’s taken hold in recent years, I wonder if anyone cares about sin stocks anymore. So, I Googled “best sin stocks.” I came up with nearly 7,000 results. I added two words to the search, “best sin stocks to buy,” and got almost 4,000 results. However, that pales in comparison to “best tech stocks to buy,” which yields more than 55,000 results.
That leaves me wondering if there are still mutual funds that invest in sin stocks. I can’t remember the last time I wrote about one of those. I covered sin stocks in June 2020 with 7 Vice ETFs That Are Bound to Deliver Sinful Returns. Of the seven ETFs on my list, my guess is that the AdvisorShares Vice ETF (NYSEARCA:VICE) — an actively managed ETF from AdvisorShares portfolio manager Dan Ahrens — would produce some of the best sin stocks.
VICE’s prospectus states a stock qualifies for consideration if it generates at least 50% of its revenue from tobacco and alcoholic beverages, the food and beverage industry, or casinos, casino hotels, sports betting, gaming services, gaming technology and gaming equipment. That allows quite a bit of wiggle room. I mean, there’s not much sinister about McDonald’s (NYSE:MCD), is there?
Anyway, from VICE’s top 10 holdings, here are my three best sin stocks to buy.
Gaming and Leisure Properties
Dave & Buster’s Entertainment
Gaming and Leisure Properties (GLPI)
Gaming and Leisure Properties (NASDAQ:GLPI) is a real estate investment trust that owns 57 casino and gaming properties across 17 states with 28.7 million square feet of property and more than 15,600 hotel rooms. The REIT got its start in 2013. Compared to the broader market, GLPI is doing quite well this year, down less than 2% versus a 17% loss for the S&P 500.
All of its major financial metrics were up in the second quarter, with revenue rising 2.7% year over year to $326.5 million and adjusted funds from operations up 13.6% to $231.6 million.
The REIT remains very busy in the M&A department. Most recently, it announced it would acquire the real property assets of Bally’s (NYSE:BALY) Twin River Lincoln Casino Resort and Tiverton Casino Hotel in Rhode Island. It paid $1 billion for the casinos in cash and equity.
GLPI has a juicy 5.8% dividend. That’s one reason to like it. Another reason is that people continue to pursue entertainment activities despite rising prices. Travelers appear to be cutting back elsewhere instead.
Analysts love the stock. Of the 19 analysts covering GLPI, 15 rate it a “buy,” with just one analyst giving it an “underweight” rating. Their average target price of $55.30 is 16% higher than the current price. In this market, that sounds pretty good to me.
Dave & Buster’s Entertainment (PLAY)
Source: Rosemarie Mosteller / Shutterstock.com
I recently suggested that the operator of high-volume entertainment and dining venues was on the road to recovery from the pandemic. As such, Dave & Buster’s (NASDAQ:PLAY) has a shot at delivering outsized returns for investors over the next five years.
The company has 200 locations in the U.S. and Canada and is looking to expand internationally. Management recently announced it signed a multi-unit development agreement with Abdul Mohsen Al Hokair Holding Group, an owner of 91 entertainment centers and 35 hotels in Saudi Arabia and the United Arab Emirates. The deal calls for Al Hokair to open 11 locations in Saudi Arabia, UAE and Egypt. This is the first of many moves by new Dave & Buster’s CEO Chris Morris to reignite the company’s growth engine.
The company reported record revenue for the second quarter of $468.4 million. Granted, $51.4 million of that was from its June acquisition of Main Event, an operator of more than 50 family entertainment centers in the U.S., in June. Oh, and by the way, Morris was Main Event’s CEO, so he must have been doing something right to end up in the top job.
Dave & Buster’s is one of those companies that has shown flashes of brilliance mixed in with periods of mediocrity. While it’s no slam dunk, I expect Morris will take investors on a nice ride, which could make it one of the best sin stocks to own.
Pernod Ricard (PRNDY)
I thought about taking Diageo (NYSE:DEO), the larger of the two liquor giants in the AdvisorShares Vice ETF’s top holdings. However, I find Pernod Ricard’s (OTCMKTS:PRNDY) brands and overall story much more interesting. It’s a personal thing. No slight against Diageo and all it has going on.
Pernod Ricard was the creation of a 1975 merger between two French anise-based spirits companies: Pernod and Ricard. Together, they had 213 years of industry experience at the time of their merger. Since then, the company’s added first-rate brands including Jameson Irish Whiskey, Jacob’s Creek wine, Chivas Regal and The Glenlivet.
On Sept. 1, the company announced fiscal 2022 full-year results that included a 17% increase in organic revenue with double-digit increases across all its geographic operating regions. Highlights included a strong rebound in travel retail, which was gutted during the pandemic.
Free cash flow, something near and dear to me, was 1.93 billion euros ($1.93 billion), almost 100% of its net profit in 2022. Its free cash flow yield is 4% ($1.93 billion FCF divided by $48.3 billion market cap). I consider a stock with a FCF yield between 4% and 8% reasonably priced.
Across all of the major financial ratios, PRNDY stock is reasonably cheap. For instance, its earnings yield is 3.57, higher than it’s been since 2018.
Down 22.5% year to date, shares are ready to go on a run.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.